Election 2020: Thoughts About a Contested Election

We’re now in the homestretch of the election season. About the only thing that’s clear is how divisive the presidential election has been for the candidates and their supporters. With a record number of mail-in ballots expected and considering the candidates’ comments during the first debate, it appears increasingly likely the fight will continue beyond November 3.

Contested elections are rare in the United States, especially in modern times. In this blog, we’ll discuss the significance of mail-in ballots, why we think the chances are high that this year’s results will be contested, and what that might mean for financial markets.

You’ve Got Mail!

Remote balloting isn’t new. In fact, according to National Geographic, mail-in voting began on Civil War battlefields when soldiers wanted to vote in the 1864 election.

What is new is how significant mail-in ballots will be in this year’s election. In a July 2020 report by The COVID-19 Consortium for Understanding the Public’s Policy Preferences Across States (www.CovidStates.org), a combined 64% of survey participants who said they planned to vote in 2020 responded they were either “very likely” or “somewhat likely” to vote by absentee or mail-in ballot.

By comparison, only 21% of voters cast their ballots by mail in 2016—a record at the time. The spike in interest for mail-in ballots this year can be largely attributed to social distancing efforts during the pandemic.

Controversies and Risks

From the outset, postal voting is a partisan issue because of partisan preferences. A recent Washington Post-University of Maryland poll found that Democrats are split on whether they prefer to vote in person or by mail. Meanwhile, 71% of Republicans responded they prefer to vote in person.

In this election, though, mail-in voting carries even more controversy and uncertainty than usual. For one, the expected increase in postal balloting comes during a period of upheaval at the U.S. Post Service.

In May, Louis DeJoy was appointed Postmaster General and began a major agency restructuring. On one hand, the fiscal and operational woes of the Postal Service are well-documented, and DeJoy is a logistics expert from his three-decade tenure as CEO of a logistics company. On the other hand, DeJoy is a major donor and fundraiser for Republicans, and some of his restructuring initiatives right before the election have disrupted postal operations and created delays in mail delivery.

Another risk to the election process is that mail-in ballots are easier to reject. Ballots can be rejected because of late arrival or missing or invalid signatures. According to a U.S. Election Assistance Commission report, about 1% of absentee ballots in 2016 were rejected.

One percent might not seem like much. But consider Figure 1, which highlights the number of absentee votes rejected in 2020 primary elections in three key battleground states in the general election.

In each state, the number of rejected votes in the 2020 primaries was 1% to 2% of the total 2020 primary ballots cast. Notably, the number of those rejected 2020 votes was within a whisker of the total vote margin of victory for the presidential candidate who won the state in 2016.


Figure 1: Absentee Votes Rejected in 2020 Primary Elections
vs. Total Vote Margin of Victory in 2016 Presidential Election

Source: CBS News, Clayton Wealth Partners (CWP).


Finally, mail-in voting could cause delays in election results because certain states have extended deadlines for postal ballots. For example, here in Kansas, mailed ballots are accepted through November 6 as long as they are postmarked by Election Day (November 3).

North Carolina, an important toss-up battleground state, allows ballots to be received up to three days after Election Day. In Ohio, another swing state that’s currently “too close to call,” mailed-in ballots can be received up to 10 days after Election Day.

In this highly charged political environment, both parties may have legitimate reasons to challenge the election day results as multiple mail-in ballot issues may take weeks to resolve.

Implications for Financial Markets

Modern history provides only one analog of how markets respond to a contested election. In the 2000 election, Vice President Al Gore finally conceded to President George W. Bush on December 13, 2000. Gore conceded 36 days after Election Day and after a series of legal battles that made their way to the U.S. Supreme Court.

From the market close of November 7, 2000, to the market close on December 12, 2000 (the day before Gore’s concession), the S&P 500 fell about 4%.

While it’s likely that election confusion was the driver of this modest decline, it needs to be considered in the broader picture. Figure 2 shows the S&P 500 price level throughout 2000.

The dot-com bubble peaked in March 2000, marking the start of a major bear market. After a brief rally in the summer of 2000, the S&P 500 rolled over again in September, likely anticipating the recession that began in March 2001.

The S&P ended the year 2000 lower than when the election had been definitively decided.


Figure 2: The S&P 500 in the Year 2000

Source: StockCharts, CWP.


Much like 2000, other significant factors are in play now besides the Trump-Biden election and its aftermath, making the near-term outlook murkier than usual. The economic uncertainty surrounding the pandemic and trade issues with China are just a few.

Given all these factors, we believe it’s safe to assume that election uncertainty will contribute to volatility that should persist for the rest of the year.

Near-Term Volatility Often Provides Long-Term Opportunity

Especially in times like this, we remind investors that stocks represent the long-term growth component of an overall investment portfolio. At Clayton Wealth Partners, we place the most emphasis on economic, corporate, and market fundamentals and valuations. In our opinion, they have greater influence than short-term political volatility on long-term investment success.



James Walden, CFA

As a partner and the firm’s Chief Investment Officer, James Walden strives to maximize our clients’ long-term, risk-adjusted portfolio returns. This includes determining strategic and tactical asset allocations, as well as specific investment analysis and prudent rebalancing. Jim is also a partner and management team member. His expertise includes advanced investment research and valuation, and he is passionate about his role in helping clients reach and exceed their financial goals.